Created: January 22, 2023
Modified: January 23, 2023

2023 Financial Checkup

One of the things when it comes to your financial future is having a structure and having certain things that are automatic that you don’t have to think about. I have found, in my life, that when I set up my environment so that things are automatic and structured for me, I am automatically setting myself up to win.

Let’s talk a little bit about our money, our financial future, our retirement planning, our estate planning, our tax planning, the things that touch money when they touch you.

Financial Checkup

At the beginning of the year, one of the things you should be thinking about – and if you’re working with a financial advisor, hopefully you’ve already done this -it’s similar to a checkup with a doctor. You want to assess where you are. Typically, you’ll have some kind of history of where you’ve been from a physical standpoint. If we’re talking about your medical condition, you have this baseline.

Well, a financial plan is the same way. You should be having some kind of a checkup, some kind of review, a snapshot of where you are right now compared to where you were in the past. Are you making progress? Once you get that checkup done, then you will identify areas that can be improved. In your particular situation, it might be saving more money in a retirement plan. If you’re already retired, it might be how to increase your income without increasing risk. It could be a number of different things. But again, this is your fitness exam and your fitness goals for the rest of the year, but we’re talking about your financial fitness. What are those goals, and have they changed? Let’s talk about goals for just a minute.

Financial Goals

Many times, people get overwhelmed when they think of financial goals. They think of financial goals, and they think, “Well, when I retire, I want to have a certain amount of money.” Or maybe if you’re already retired, you say, “Well, I want to leave a certain amount for my kids.” The problem with those goals is they’re very wishy-washy goals and they’re not very concrete. So, when we say we want to set your goals with you, or we want to help you set those goals, they need to be very, very vivid. Think of them as a vivid vision where you’re looking out three years, ten years, maybe for the rest of your life, and saying, “This is exactly what I want my life to look like from a financial standpoint, for example, ten years from now.” That’s where we want to set your goals from, because it’s very hard to set short-term goals when you don’t know what the long-term picture is going to look like. Once you have those goals and they’re very vividly written down, then you want to adjust that financial plan to meet those goals.

Establishing a Structure

We always talk about a financial plan being a foundation; a foundation for your future, a foundation to help buffer you, just like a foundation in a house does for the elements, right? Things are going to change in your life. There are going to be changes in the political environment, perhaps changes in your family, and there are going to be health situations that come up. You might have inflation, as we’ve experienced recently here, where your plan may need to be adjusted. So, there’s a balance here. If you’ve got that solid financial plan, that’s great. That’s your foundation. But at the same time, we might need to make adjustments from time to time.

Planning for Adjustments to your Financial Plan

That shouldn’t mean ripping out your entire financial plan. It should mean adjustments. If we focus on physical fitness as an example, when I work with a trainer and they set objectives for me at the start of the year, certain tweaks may need to be made halfway through because either something isn’t going according to plan, or our goals have been accomplished much sooner than expected. That’s very much like your fiscal fitness or your financial fitness. How do we make those adjustments? It doesn’t mean you go back and start the whole plan over again.

Recently, I was speaking with a person who is now one of my clients. They mentioned that their financial advisor always reworked their entire plan every two to three years instead of making minor alterations and updates. Our opinion is if you had the right financial plan in the first place, you should not have to do that. You shouldn’t have to be making big adjustments, throwing out the financial plan and redoing one. As you move forward, make small adjustments. I think of it like steering a car; when driving, taking drastic turns can be violent and potentially dangerous for the vehicle and yourself. Instead, regularly adjust your direction with gentle movements to ensure an even journey.

So, what kind of impact is the stock market having? Do you need to adapt your financial plans because of inflation or shifts in political landscapes? Will changes in cost-of-living affect you and how do we adjust for that? And when it comes down to setting goals, should they be short-term or long-term ones? These are all important questions to consider as you plan out managing your money.

Short-Term vs. Long-Term Goals

To accomplish our long-term objectives, we need to break them down into achievable short-term successes. These small wins add up and eventually lead us to the bigger picture – our ultimate goal. And so how do we set those short-term goals? As you look ahead to the next year, one of the most important things to consider is whether or not your income will enable you to reach all of your goals. Do you have the right income now?

If you’re currently retired, it’s simple for us to modify the amount of your income. And if you require additional money, we need to guarantee that your funds won’t run out while working. It can be harder due to fixed payrolls; however, we can adjust how much is taken home or even increase the sum going into savings directly after entering the bank account. This would qualify as a short-term goal which in turn will help reach long-term objectives and ultimately satisfy an income purpose!

The Role of Insurance

What are some of the things that we need to look at the beginning of a year when we think about our financial life? Well, first of all, one of the things we want to make sure of, and a lot of people overlook, is that we have the right insurances in place. Insurance is a way to shift risk. We pay an insurance premium, and we shift risk away from us to the insurance company. It’s really that simple. As we enter the new year, it’s essential to consider our financial well-being holistically. While often overlooked, having adequate insurance coverage is a crucial part of this – and extremely straightforward. We hedge risk by paying an insurance premium that transfers that burden away from us onto the insurer. It is crucial that we secure the right homeowner’s insurance, life insurance and disability insurance if you are still employed; but what about auto coverage? Let us make sure our automotive policies provide adequate protection as well.

If I have my 25-year-old son driving my car when he comes home for the holidays, I better make sure I have enough insurance because, and anybody knows, a 25-year-old young man is a lot higher of a risk to an insurance company than myself who is, you know, getting on in life, let’s just say. We want to make we have the right insurances in place. That would be part of a financial plan that, again, a lot of people overlook. Then, you’ll want to consider if you have enough emergency money. Do you have enough savings where you don’t have to disturb your long-term investments to meet any kind of an emergency?

How Much to Save

Now is a great time to get serious about saving. Aim to save 15% of your income, and if you have a 401(k) plan, invest enough so that with the match included you are setting aside at least 15%. I know for some of you that sounds like a lot of money. For others, you might be saving more than 15%. Either way, it’s important not only for now but also in preparation for retirement down the line.

Whenever we take a peek at our 401(k)s or retirement plans, there is an impulse to switch the funds from those that don’t perform well into ones that do. Unfortunately, this strategy could backfire and result in long-term financial losses. The problem is everything is cyclical. One investment style, let’s say, buying small company growth stocks will do really well, and then it’ll go out of favor for a while. And at the same time, while those small company growth stocks were doing well, you might have large companies or international companies that aren’t doing well, and they will come back in favor. Be patient and resist the temptation to over-focus on short term outcomes. Compound interest works in your favor when you take a ‘hands off’ approach; rather than trying for massive leaps, big gains come from being patient and consistent with small steps. The same applies to physical fitness – those who work hard long-term are rewarded.

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